Kieran Michael Bourne & Anor v Manuk Manukyan & Anor

The liquidator of M.M. Apartment Letting Ltd sought remedies under s.212 (misfeasance), s.238 (transactions at an undervalue) and s.239 (preferences) of the Insolvency Act 1986 and under the Companies Act 2006 in respect of a £10,000 dividend declared after the deemed commencement of the winding up and a series of payments totalling £93,003.73 made from the company bank account. The court held that the company was insolvent from at least 14 August 2017 and that the director, Mr Manukyan, failed to provide adequate explanations or documentary support for many of the withdrawals and payments.

Applying the principle that a fiduciary who makes payments must account for them, the judge found that numerous cash, miscellaneous and London payments were not shown to be for proper company purposes and ordered repayment under s.212. The June 2018 dividend was unlawful and ordered repaid. Store-card payments that demonstrably discharged company liabilities to a third party (Nell Gwynn House) were treated as value received and not reclaimed from the director, but certain of those payments produced a preference in favour of Mrs Manukyan and were recoverable under s.239 because she did not rebut the statutory presumption of a desire to improve her position.

Background and parties: M.M. Apartment Letting Ltd was in compulsory liquidation following a creditor petition by Nell Gwynn House. The applicants were the liquidator, Mr Kieran Bourne, and the company; the respondents were the former sole director, Mr Manuk Manukyan, and his wife, Mrs Yolanda (Yolande) Manukyan (company secretary). The application sought recovery of an unlawful post-onset dividend and various withdrawals and payments made from the company bank account between 14 August 2017 and 13 April 2018.

Nature of the claim: Relief was sought under s.212 IA 1986 for misfeasance and breaches of directors’ duties, under s.238 IA 1986 for transactions at an undervalue, and under s.239 IA 1986 for preferences. The Companies Act 2006 provisions on distributions and repayment by shareholders (including s.830, s.836 and s.847(2)) were considered in relation to the dividend.

Key facts and procedural posture: The company operated a low-margin short-stay accommodation agency, had a single bank account and was operated by the sole director. The director admitted that his wife had made payments to Nell Gwynn House using personal store cards and that some repayments or credit-card top-ups were made from the company account. The director gave evidence; Mrs Manukyan did not attend and provided no evidence. The liquidator’s evidence included company accounts, card statements and bank records.

Issues framed:

• Whether the company was insolvent at relevant times.
• Whether the Payments and the June 2018 dividend were misfeasance or unlawful distributions requiring restoration or repayment.
• Whether any of the Payments constituted transactions at an undervalue.
• Whether repayments to Mrs Manukyan constituted voidable preferences and, if so, whether she rebutted the s.239(6) presumption.

Court’s reasoning and findings: The judge concluded the company was insolvent from at least 14 August 2017, drawing on account figures, admitted cashflow difficulties, the need for a £40,000 family advance in March 2017, and deterioration of the principal trading relationship with the company’s main supplier. The court applied established authority that once a liquidator proves a payment, the evidential burden shifts to the fiduciary to explain the transaction; absent adequate explanation, liability under s.212 may follow.

On that basis the court: (i) treated the June 2018 dividend as unlawful and ordered repayment; (ii) found many cash, miscellaneous and London payments unexplained and ordered repayment against the director under s.212; (iii) accepted that certain card payments demonstrably paid company liabilities to Nell Gwynn House constituted value and were not reclaimed from the director; and (iv) held that a subset of payments indisputably benefited Mrs Manukyan and constituted preferences under s.239, which she failed to rebut given her absence of evidence and the statutory presumption.

Relief granted: repayment orders were made in specified sums against Mr Manukyan and Mrs Manukyan; the judge reserved detailed form of order, interest and costs for further submissions.

At first instance the application succeeded in part. The court found the company insolvent from at least 14 August 2017, concluded that the director, Mr Manukyan, had not accounted for many withdrawals and payments and had caused an unlawful dividend, and ordered repayment under s.212 IA 1986 (and Companies Act remedies) of specified sums totalling £75,024.35 against him. The court also held that certain payments had preferred Mrs Manukyan and, because she did not rebut the presumption in s.239(6), ordered repayment under s.239 IA 1986 of £8,996.40 against her. The rationale was misfeasance through failure to explain or justify payments during insolvency, unlawful distribution in breach of CA 2006 and s.127 IA 1986, and the statutory presumption of desire to prefer connected persons not being displaced.